The 7 mistakes companies make when managing ESG

More and more companies are aware of the long-term opportunity offered by developing effective strategies for ESG management (Environmental, Social and Governance). Better access to capital, talent and new business opportunities are just some of them, according to an article published by Harvard Law School.

But many of us are finding it difficult to create a plan of action. To navigate the complex and changing ESG landscape, companies must avoid misguided approaches that lead them to miss opportunities. These are the most common mistakes that are commonly made. At best, these failures lead them to not achieve their objectives, but they can run very high risks.

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1. Focusing excessively on ratings

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Some companies confuse improving their ESG management results with a better rating by evaluation agencies. This type of positioning can create a distortion by focusing on meeting requirements and not on developing a strategy tailored to the company.

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2. Treat ESG solely as a communication effort

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Communication can help amplify messages, but they cannot be replaced by a powerful management system that is aimed at controlling real risks. Investors and stakeholders can detect inconsistencies in terms of what has been reported and the actions that are actually being taken. This is often referred to as”Greenwashing”, which exposes the company to greater risks.

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3. Lack of vision on the part of management

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Some companies delegate ESG activities to people or departments of the company, but without the involvement of senior management. However, the ESG management strategy should be positioned as a core part of the company's vision and values. Therefore, it is imperative that top managers not only oversee, but also promote and define the ESG strategy, aligning it with the rest of the company's strategy.

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4. Disconnected from business strategy

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Una ESG strategy cannot be conceived independently to the rest of the company's business strategy. An ESG strategy that does not take into account the company's strategic objectives and that does not inform the corporate strategy is failing its purpose. This disconnect may be due to misperceptions about the ESG program, a lack of vision on the part of the management team, or a failure to carry out a comprehensive materiality assessment.

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5. Compliance-oriented approach

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Some companies present their ESG management programs with reference to compliance with rules and regulations environmental, health, safety... This approach can be perceived as reactive and indicate a resistance to going beyond minimum requirements.

To position themselves as leaders, they should proactively demonstrate that they have excellent programs that exceed minimum requirements, as a deliberate part of an ESG strategy.

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6. Inconsistencies across the company

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As a result of the lack of a coordinated strategy, some companies end up adopting different standards in different divisions without a clear reason for such business discrepancies. These types of approaches leave significant gaps in companies' ESG management programs, creating high potential risks.

Creating a cross-sectional map of your policies and programs for each business unit and harmonizing efforts to achieve a single and consistent approach are some of the recipes to avoid falling into this error.

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7. Lack of assessment and monitoring

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The collection of data and information to measure compliance with ESG programs. This constitutes an enormous challenge for companies in implementing these policies. The lack of effective monitoring prevents you from making progress, as well as receiving support for your initiatives through reporting.

Creating the mechanisms and methodologies to collect appropriate information and monitor it can involve a significant effort at the beginning. However, this process can become a key instrument for the success of the program.

In addition to reviewing the data, the measurement should include a ongoing assessment of the effectiveness of ESG management programs and constant adjustment for continuous improvements. Find out more about ESG at our blog!